E-Commerce Recurring Payment Plans

A recurring payment plan exists when a customer authorizes a merchant to automatically charge his or her card account for the periodic delivery of goods or services. In the e-commerce, a recurring transaction is typically an automatic payment for internet services. Because recurring transactions are processed automatically, without the direct participation of the cardholder, they are particularly prone to customer disputes and the resulting chargebacks. You need to be aware of the potential pitfalls and design your sales and order processing procedures with risk mitigation in mind.

Listed below are several best practices you should consider when initially setting up a recurring payment plan.

• Process the initial transaction in the same way as any other card-not-present transaction. For all card-not-present transactions, including the ones set up by phone or mail, submit Address Verification Service (AVS) and Card Security Code (CVV2, CVC 2 or CID) requests with the authorization. For internet transactions, also use Verified by Visa or MasterCard SecureCode, where applicable, as an additional way for validating cardholder information.
• Include the recurring plan details in the sales receipt for the initial transaction. The sales receipt for the initial recurring transaction should contain the essential details of the plan your customer signed up for. Include the following information:
  • The phrase “Recurring Transaction.”
  • The frequency of the payments.
  • The period of time for which the customer has agreed to make payments. If the service will be provided on a continuous basis until the customer cancels the plan, this should be clearly noted on the transaction receipt.
• Keep the recurring plan records on file for the duration of the plan. For each recurring payment plan you set up, keep its records on file for the duration of the arrangement to be provided to the card issuer upon request in case of a customer dispute. Visa and MasterCard allow e-commerce merchants to accept emails as cardholder permission to set up a recurring payment plan and you should keep these emails. Make sure your email service provides an easy access to stored emails.
• Canceling recurring transactions. The following procedures should be followed when canceling recurring transactions:
  • Check customer logs daily for cancellation or non-renewal requests for services paid for with recurring transactions. Comply with these requests in a timely manner and notify customers that their recurring payment plans have been canceled.
  • Promptly process all credits resulting from recurring transaction cancellation requests. If the cancellation request has been submitted too late to prevent the most recent recurring charge from being posted to the cardholder’s account, issue a credit and notify the cardholder.
  • Issue a cancellation number and provide it to your customer.

It is important to understand that your customer does not have to provide an evidence to prove that he or she has submitted a cancellation request. All they have to do is contact you and submit the request, either verbally or in writing. In the case of a?áchargeback resulting from processing a transaction after a cancellation request has been submitted, you will have no remedy and the?áchargeback will have to be accepted. Remember that keeping customers informed promotes customer satisfaction and minimizes disputes. Take full advantage of all communication channels that you have at your disposal.

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